William Perry and Stephen Hadley, who co-chair the bipartisan panel, told the Senate Armed Services Committee the 2010 QDR needs to go a step further in providing a force-planning construct to shape the Defense Department for the next 10 to 20 years.

They also recommended that Defense Secretary Robert M. Gates establish a new commission on military personnel to reconsider long-standing practices that they called economically unsustainable.

Reporting on the panel's report, issued July 29, Perry -- who served as President Bill Clinton's defense secretary -- said the military likely will need to sustain recent end-strength increases in the Army and Marine Corps for the long term as it focuses on building force structure within the Air Force and Navy.

The Air Force has "about the right force structure," he said, but needs to augment its long-range strike capability. Perry also noted the need to boost the Navy, particularly to sustain free transit in the Western Pacific.

In addition, the Defense Department must be prepared to assist civil departments in the event of a cyber attack, Perry said, recommending that a portion of the National Guard should be dedicated to the homeland security mission.

These requirements come on top of a major recapitalization required of U.S. forces, part of it due to wear and tear on equipment used in Iraq and Afghanistan, he said.

"What we have described as a need will be expensive," Perry conceded. "But deferring recapitalization could entail even greater expenses in the long run."

Perry cited the success of the all-volunteer force, but said dramatic cost increases in recent years to support it can't be sustained long-term.

"We believe we must seriously address those costs, and that failure to do so would lead either to a reduction in force or a reduction in benefits or some way of compromised all-volunteer force -- none of which is desirable," he said.

Perry recommended that Gates establish a commission to evaluate the Tricare military health plan and other benefits, expected service lengths, the “up-or-out” policy and other long-standing personnel practices. Among issues the commission should consider, he said, is emphasizing cash upfront instead of future benefits.

While acknowledging that these "are all big issues and all very politically sensitive," Perry said it's critical that they be addressed to face the future.

Hadley, President George W. Bush's national security advisor, reported the five gravest potential threats likely to arise over the next generation: radical Islamic extremism and the threat of terrorism; the rise of new global powers in Asia; the continued struggle for power in the Persian Gulf and greater Middle East; accelerating global competition for resources; and failed and failing states.

"The current trends are likely to place an increased demand on American hard power to preserve regional balances," he said.

But Hadley also cited a unique opportunity to develop and adapt institutions to confront these challenges. "We have various tools of smart power, diplomacy, engagement, trade, communications about Americans' ideals and intentions," he told the committee. "And these will increasingly be necessary to protect America's interests."

Hadley echoed Gates' call for stronger "soft-power" capabilities, and recommended structural and cultural changes within the government so non-military branches can assume a larger role in protecting national interests.

To promote this effort, Hadley called for Congress to consider establishing a single national security appropriations subcommittee and coordinated authorization process between relevant committees.

He also recommended that the president and Congress establish a national commission to build the civil force for the future and provide a blueprint so civilian departments and agencies are better postured to deploy overseas and work cooperatively with military forces in insecure security environments.